Quantifying Financial Impacts of Biodiversity? Conceptual and Theoretical Frameworks, Limits, and Implications

13 Pages Posted: 22 Mar 2022 Last revised: 27 Sep 2022

See all articles by Hugues Chenet

Hugues Chenet

IESEG School of Management; University College London - UCL Institute for Sustainable Resources; Chair Energy and Prosperity

Date Written: September 15, 2022

Abstract

The issue of biodiversity has entered the sphere of finance very recently, following the recent precedent of climate change. This encounter questions whether the living world and its natural complexity can be integrated within a domain dominated by numbers, prices and economic rationality. This paper focuses on the evaluation of financial risks related to biodiversity loss, which is the primary approach taken by financial system stakeholders to consider nature. We review the different conceptual and theoretical frameworks called upon to apprehend, capture, and integrate biodiversity into the financial system from the perspective of ‘macrofinance’, i.e. financial institutions, but also financial supervisors and monetary authorities. We analyse in particular the challenge of quantifying how biodiversity loss can affect a financial product, portfolio or institution through the use of traditional concepts such as prices and financial risk and examine the main limitations and implications of such approaches, in the face of alternatives based on strong sustainability or double materiality.

Keywords: Biodiversity, Financial Stability, climate change, financial risk, modelling

JEL Classification: Q54, Q57, E44, E58, G28, G14

Suggested Citation

Chenet, Hugues, Quantifying Financial Impacts of Biodiversity? Conceptual and Theoretical Frameworks, Limits, and Implications (September 15, 2022). Available at SSRN: https://ssrn.com/abstract=4037473 or http://dx.doi.org/10.2139/ssrn.4037473

Hugues Chenet (Contact Author)

IESEG School of Management ( email )

Socle de la Grande Arche
1 Parvis de la Defense
Puteaux, Paris 92800
France

HOME PAGE: http://bitly.ws/uN7M

University College London - UCL Institute for Sustainable Resources ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Chair Energy and Prosperity

France

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